The big trap of small business
21 November 2014
Posted by: Author: Vusi Thembekwayo
Author: Vusi Thembekwayo (Entrepreneur Magazine)
Discovery Ltd was started in the year 1992.
Its turnover is R34 billion & market capitalisation is over R57 billion.
Curro Holdings Ltd was started in the year
1998. Its turnover is R487 million & its market capitalisation is just over
Yet in the same time countless
entrepreneurs have started their own small businesses and more fail than those
that succeed. You’d be forgiven for thinking that the founders of companies
like Discovery, Curro, First Rand, GijimaAST and BCX are all geniuses. They’re
not. They just understand that if a business is not scalable and is built to
inherently "stay small”, then it will die.
So why is South Africa so deeply focused on
creating small businesses? Why do we have a legislative framework that seems to
encourage and even incentivize entrepreneurs to stay small and fly under the
There are few fallacies about starting and
running a large business that many entrepreneurs have that need some
1. Its harder to run a big business
I sit on the board of several very large
businesses. I am a partner in a private equity outfit & often engage with
business leaders when are looking for opportunities to buy into businesses. Not
only that, I have run a R500 million a year business and today influence over
R4 billion in capital.
The task of running larger business is more
complex but is not in itself harder. The effort is the same. You often work the
same hours, manage similar issues and have to answer the same burning questions
around the future and you will get there.
What changes as you move from small to
medium and then medium to large is the "complexity” of the business. There is a
deeper interdependence of factors and the stakes are higher but the effort is
want to own everything. I am the boss of me.
Too many small business entrepreneurs
actually think they are "free”. If you have to go to work and be at the office
to make a living then you are not free, you simply have the illusion of freedom
with higher responsibilities than corporate employees.
Sometime ago I realised that I needed a
better pool of talent in my business. I needed deeper insight, better technical
expertise and more proven track-records. But I couldn’t hire these people into
Not only could I not afford them, but I
would never be able to get the best out of them as conventional "employees”. So
decided to create a floating shareholding structure through which "key people”
could have equity in the business apportioned by the percentage contribution to
This is hard because having other
shareholders means you must ensure that corporate governance is in place and
that apply the very same "corporate-rules” that you left employment for.
However, this was the best decision I ever made.
I couldn’t have hoped for a better team and
the business has grown 121% on average every year for the past 3 years. This
year we are on track for a 208% growth in top-line revenues. This is not
because I am smarter or working harder but rather I gave a portion of my
business away to people that were best able to help me create wealth.
Caution: take your time choosing these
people. It is not a decision to betaken likely. Test them out first. Give them
tasks. Give them an opportunity and see what they deliver. Too many people have
learnt how to "interview” well.
Hire cheap. It’s just a job.
This is the Achilles of most entrepreneurs.
Hiring the cheapest person in an effort to contain costs often leads to other
"implicit and non-direct” costs like bad workmanship, poor quality of work,
tardiness, laziness, disengagement and the myriad of HR issues that follow this
type employee. These also happen to the hardest people to fire. They are bad at
their jobs so as a survival tool, they have had to be good at labour relations.
When it comes to developing your business
in the early days, then the laws are "first brains in seats then bums in
seats”. Get the right people. Pay them
correctly. Inspire them to believe in the future. Give them ownership of the
future and watch them WOW you.
In the end, no small business ever changed
the world by staying small.